Credit cards cost us thousands
CREDIT card customers are battling excessive interest rates and high annual fees, while rewards points are being slashed, research shows.
Meanwhile $52.2 billion of credit card debt has Australians wondering whether it’s time to cut up the plastic once and for all.
New analysis from financial services firm Canstar shows customers who fail to pay their card bills in full each month are getting slugged interest rates as high as 24.99 per cent and annual fees of up to $700.
But there are cheaper ways to buy goods.
Calculations show a customer buying a $2000 couch and adding the debt to a $300,000 home loan with a 4.5 per cent interest rate would pay an additional $3648 over the loan term.
But if that couch was purchased on a credit card with an average rate of 18.75 per cent, it would cost $3872 after 11 years and eight months of minimum repayments.
HR manager Rita Meguerditchian, 33, said she has never owned a credit card and manages by paying by debit.
“I was always told by my parents ‘if you can’t afford it don’t buy it’,’’ she said. “I don’t feel like it I need it but sometimes I use Afterpay to pay for things and this has helped me maintain my no credit card life.
“I’ve gone on holidays, bought an investment property, sold that and bought a property I live in now so it’s not like I’m struggling without a credit card.”
Canstar spokeswoman Belinda Williamson urges consumers not to “get blinded by introductory offers” on cards and focus on all the fees and charges.
“You should look at the interest rate, annual fee and type of credit card that’s suited to you,’’ she said. “Cards with lots of perks are likely to have higher interest rates and annual fees than other types.”
Tribeca Financial CEO Ryan Watson said there’s a big difference between consumers sticking with debit or credit cards.
“Debit cards foster financial responsibility, they still give the consumer the flexibility to buy goods and services from a range of outlets without the associated high interest debt,’’ he said.
“Credit cards are a debt trap ... consumers make purchases on credit cards with the view to paying them off within the interest free period, but this simply doesn’t happen the majority of the time.”